The total build cost for Apple's new iPhone 5s is just under what it cost Apple to build its predecessor a year ago, according to a new report, while the iPhone 5c's total build cost likely allows Apple to grab a better margin.

A forthcoming IHS iSuppli report obtained by AllThingsD posits that Apple spends at least $191 on components to build a 16GB model of the iPhone 5s and between $167 and $176 for a low-end iPhone 5c. Those prices are just a few dollars lower than what Apple spent in order to build the iPhone 5 according to iSuppli's year-ago report on that device. The firm adds another $8 in assembly costs for the iPhone 5s, while iPhone 5c assembly tacks on another $7 to assemble, giving full construction estimates of $199 for the 5s and between $173 and $183 for the 5c.

The iPhone 5, released in 2012, cost Apple about $205 to produce and sold for between $649 and $849 off-contract. Apple saves about $13 to produce the new high-end iPhone, even considering its beefed up processor and biometric sensor, and Apple sells it for the same price point.

Memory capacity plays a part in the price of an iPhone, with the jump from a 16GB module to a 64GB module adding $19 to the component cost, plus another $8 in assembly.

The display components are among the biggest cost contributors for the device, though, amounting to $41 out of the component cost. IHS believes that Apple's displays came from a number of vendors, including Sharp, Japan Display Inc., and LG Display.

The use of a polycarbonate shell for the iPhone 5c helps Apple drop the component cost of what is essentially an iPhone 5 even further. Whereas the iPhone 5 was machined from a single piece of aluminum in a costly process, Apple spends only $173 to build a 16GB iPhone 5 model and $183 to build the 64GB model.

IHS' look at the new iPhones seems to agree with some observers' opinion that the iPhone 5s, despite the addition of a number of technologies, is more of an incremental progression over its predecessor.

"I would say that they're almost the same phone," said IHS analyst Andrew Rassweiler, "except for that the 5s has the fingerprint sensor, the A7 processor and some newer memory chips that consume less power. Beyond that, they're basically the same."

The lower production cost per unit could work in Apple's favor going forward. The Cupertino company recently revised its guidance for the September quarter after selling more than nine million new iPhone units in the launch weekend. Part of that guidance revision was to orient investors to look toward the upper range of its previous estimate, possibly due to the improved margins on its hot-selling new devices.

The total build cost for Apple's new iPhone 5s is just under what it cost Apple to build its predecessor a year ago, according to a new report, while the iPhone 5c's total build cost likely allows Apple to grab a better margin.

No, but this is a common misconception. The 5c's total build cost would allow Apple to grab a better margin if the difference in total build cost between the two was more than $100. Since the difference is less than $100 but Apple charges $100 less for the 5c than for the cheapest 5s, the margins are better for the 5s.

If they sold it for $300, they would. Also costs decrease with larger orders.

How the hell do you know they could sell 4x the iphones? Thats total BS.

Last year Apple sold 120,000,000 phones. Do you think for a second they can sell let alone manufacter 480,000,000 phones? What are you smoking. I guarantee that all the phone makers combined don't sell 480,00,000 $300+ phones last year.

How the hell do you know they could sell 4x the iphones? Thats total BS.

Last year Apple sold 120,000,000 phones. Do you think for a second they can sell let alone manufacter 480,000,000 phones? What are you smoking. I guarantee that all the phone makers combined don't sell 480,00,000 $300+ phones last year.

Obviously they did as apple only have 20% of the market. Also your maths are wrong as they only need to sell 4 times as many 5Cs as 5S's not total sales.

Edit: you said 480k $300+ devices. Probably not but that market is growing rapidly and Apple can own it.

I hate to break it to these 'analyst' but most products are incremental upgrades. Is an SSD an incremental upgrade of a hard disc or does it alter the course of an industry?

In my opinion a technology that alters the course of an industry is not an incremental upgrade. If you only see the outside of the iPhone you will never realize how much of a change Touch ID is and the future that lies ahead for this technology.

Yeah. I did. Still think it will be that price. If not this year then next, by then component costs will be lower allowing a 50% margin.

Hell, I mentioned that Apple could build a phone (if they wanted) that would sell between $350-$400 (I was not referring to the 5c) and I was greeted with a shit storm of stupidity. Just for saying they could if they wanted.

If they sold it for $300, they would. Also costs decrease with larger orders.

How the hell do you know they could sell 4x the iphones? Thats total BS.

Last year Apple sold 120,000,000 phones. Do you think for a second they can sell let alone manufacter 480,000,000 phones? What are you smoking. I guarantee that all the phone makers combined don't sell 480,00,000 $300+ phones last year.

I like the way you think. I don't think enough people realize this. It all abstract to them, lower the profit margin by 3 and sell more than 3 times as much. Yeah right. That is a gamble, I don't personally like. One in the hand at 3x the margin is better than 3x+ units with 1/3 margin in the bush any day of the week. Recipe for disaster due to excess inventor. Ask the PC guys.

"Building for the future?! They should be running around reacting to the present!" -John Moltz

That's exactly the problem with these reports on the cost of the bill of materials. People mistake them for the total cost of the item. There are lots of additional costs. R&D and software development investments, which are amortized among all devices. Future software upgrades, which are accrued. Free bundled software like iWork and iLife. Below the line marketing. Logistics. Packaging.

And one of the biggest - tooling costs. That's another misunderstanding people have. Too many think that Apple has no manufacturing costs other than to the outsourcers. Not true at all, and a lot of custom tooling is paid for and owned by Apple. See this.

Obviously they did as apple only have 20% of the market. Also your maths are wrong as they only need to sell 4 times as many 5Cs as 5S's not total sales.

Edit: you said 480k $300+ devices. Probably not but that market is growing rapidly and Apple can own it.

wrong again. Apple has 20% of the entire smartphone market. But the vast majority of smartphones are sold for less than $300. I specifically mentioned that there are not 480M smartphone customers buying $300 phones worldwide.

wrong again. Apple has 20% of the entire smartphone market. But the vast majority of smartphones are sold for less than $300. I specifically mentioned that there are not 480M smartphone customers buying $300 phones worldwide.

Nokia's averaging selling price is less than $250 per phone.
Imagine how low the cheap chinese brands are?

Very cheap I am sure. But that is not what I am talking about. I acknowledged , and you quoted, that we were talking about the $300+ market but that it was growing.

Overtime the sub $100 market will collapse like the home computer market of the 80's. apple can sweep up the middle range.

If they sold it for $300, they would. Also component costs decrease with larger orders. And over time.

You know nothing about pricing elasticity. Seriously, contact your local community college and take an introductory economics course. There are very advanced statistical models which show how to price consumer goods to optimize revenue, profit, and unit sales. This isn't something some anonymous person on an Internet forum is going to know anywhere close to Apple.

which would be? I'd like to hear your prediction as to when Apple will sell 5c for $450 unlocked and the business justification for lowering margin.

Well, we'll have to see how the 5c sales are for this next quarter. If the early statistics prove to be correct and the 5c is selling at the same levels as it did at introduction (very low in China and Japan) then there is a good chance we'll see a price reduction. We could even see a small reduction by the end of November.

You know nothing about pricing elasticity. Seriously, contact your local community college and take an introductory economics course. There are very advanced statistical models which show how to price consumer goods to optimize revenue, profit, and unit sales. This isn't something some anonymous person on an Internet forum is going to know anywhere close to Apple.

That's exactly the problem with these reports on the cost of the bill of materials. People mistake them for the total cost of the item. There are lots of additional costs. R&D and software development investments, which are amortized among all devices. Future software upgrades, which are accrued. Free bundled software like iWork and iLife. Below the line marketing. Logistics. Packaging.

And one of the biggest - tooling costs. That's another misunderstanding people have. Too many think that Apple has no manufacturing costs other than to the outsourcers. Not true at all, and a lot of custom tooling is paid for and owned by Apple. See this.

I agree.. which would lead me to believe that with the retooling and change to do plastic, Apple is not even making the extra $20 BOM cost difference between last year's 5 design and this year's 5c.

"Building for the future?! They should be running around reacting to the present!" -John Moltz

You know nothing about pricing elasticity. Seriously, contact your local community college and take an introductory economics course. There are very advanced statistical models which show how to price consumer goods to optimize revenue, profit, and unit sales. This isn't something some anonymous person on an Internet forum is going to know anywhere close to Apple.

Lol. Pricing elasticity is exactly what we are talking about here. Cheaper prices drive more sales unless your product is a super elite product like a BMW. The iPhone is a mass market product.

I am sure they can estimate sales in apple better than me, or an idiot who thinks that you can't get orders if magnitude more sales at some prices than others. A good historical example is the original iPhone. Far too expensive at $399 - sold like hot cakes at $199. (Subsidised)

My guess is apple know what they can sell at that price point but also know their manufacturing capabilities.

Even if their cost were accurate, the MARGIN would be $350. NOT the profit. The profit is what's left after you deduct all your overheads (sales, marketing, design, admin) from the margin.

Quote:

Originally Posted by asdasd

I distrust these costings anyway.

That's undoubtedly true. These projections say that Apple's gross margins are 70% on most products. Yet their actual gross margin is half of that. Some of that is mix, but the iPhone makes up such a large portion of their sales that the total margin would have to be higher than 36% if they were even close to being correct.

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

which would be? I'd like to hear your prediction as to when Apple will sell 5c for $450 unlocked and the business justification for lowering margin.

Well, we'll have to see how the 5c sales are for this next quarter. If the early statistics prove to be correct and the 5c is selling at the same levels as it did at introduction (very low in China and Japan) then there is a good chance we'll see a price reduction. We could even see a small reduction by the end of November.

I like the way you used safe terms. "if" "good chance" and "could" . nice.

Based on Apple's signal to the street that it seems to me that Apple is not interested in going after market share over margin. As a result, I'm gonna predict they will keep the price the same and continue to manage their inventory aggressively. That is my prediction, no "if" "good chance" or "could" about it. When I am wrong, go ahead and call me on it.

Edited by snova - 9/24/13 at 1:51pm

"Building for the future?! They should be running around reacting to the present!" -John Moltz

Why don't you tell us exactly what the price elasticity is for the iPhone, then.

In reality, the 5S is outselling the 5C by a huge margin - even though it's considerably more expensive. iPhone customers are not as price sensitive as your average crappy phone customer.

The 5s is outselling according to a few reports on one site on the Internet. Now if any of you people owned stock or listened to conference calls or read asymco etc. you would know that the 4S was selling more than the 5 recently.

However the 5S outselling the 5c is probably a first week thing. In the long term apple would expect the lower cost phone to sell more.